NCLT/NCLAT Can't Interfere With Commercial Wisdom Of CoC Except Within Limited Scope Under Sections 30 & 31 IBC : Supreme Court

The Supreme Court has reiterated that the National Company Law Tribunal(NCLT) or the National Company Law Appellate Tribunal(NCLAT) cannot interfere with the 'commercial wisdom' of the Committee of Creditors(CoC), except within the limited scope under Sections 30 and 31 of the Insolvency and Bankruptcy Code(IBC).Based on this well settled principle, a 3-judge bench comprising Justices AM Khanwilkar, BR Gavai and Krishna Murari set aside an order of the NCLAT which had annulled the decision of CoC to accept a resolution plan(Kalparaj Dharamshi and another vs Kotak Investment Advisors Ltd and Others and connected cases)."It would thus be clear, that the legislative scheme, as interpreted by various decisions of this Court, is unambiguous. The commercial wisdom of CoC is not to be interfered with, excepting the limited scope as provided under Sections 30 and 31 of the I&B Code", the Supreme Court observed referring to precedents such as Committee of Creditors of Essar Steel India Ltd vs Satish Kumar Gupta and others, Maharashtra Seamless Ltd v Padmanabhan Venkatesh and others, K. Sashidhar vs. Indian Overseas Bank etc."It will therefore be clear, that this Court, in unequivocal terms, held, that the appeal is a creature of statute and that the statute has not invested jurisdiction and authority either with NCLT or NCLAT, to review the commercial decision exercised by CoC of approving the resolution plan or rejecting the same", the judgment authored by Justice BR Gavai stated."We are of the considered view, that in view of the paramount importance given to the decision of CoC, which is to be taken on the basis of 'commercial wisdom', NCLAT was not correct in law in interfering with the commercial decision taken by CoC by a thumping majority of 84.36%", the Court observed.Factual backgroundThe appellants in Supreme Court, Kalparaj Dharamshi and Rekha Jhunjhunwala, were successful resolution applicants in a corporate insolvency resolution process. The respondent, Kotak Investment Advisories Ltd(KIAL), another resolution applicant, challenged the acceptance of the resolution plan of appellants contending that it was accepted beyond the time-period.The NCLT dismissed the challenge. However, in further appeal by KIAL, the NCLAT interfered with the CoC decision.Being aggrieved with the NCLAT order, Kalparaj and certain other financial creditors appealed to the Supreme Court.Issues before the Supreme CourtThe Supreme Court considered three issues :(i)Whether the appeals filed by KIAL before NCLAT were within limitation?(ii)Whether there was waiver and acquiescence by KIAL, so as to estop it from challenging the participation of Kalpraj?(iii)Whether NCLAT was right in law in interfering with the decision of CoC of accepting the resolution plan of Kalpraj?First issueThe first issue was relating to the fact that KIAL had first approached the High Court challenging the NCLT decision. The High Court however refused to entertain the matter saying that the alternate remedy of appeal before NCLAT was available to KIAL. The issue was that whether the time spent pursuing the case in High Court could be regarded as bona fide prosecution for the purposes of exclusion of time for limitation under Section 14 of the Limitation Act.Answering the issue in favour of KIAL, the Supreme Court noted that the writ petition filed in High Court was not just pertaining to the CoC decision; there were allegations with regard to the manner of functioning of NCLT.The SC observed that KIAL was prosecuting the proceedings before the High Court with due diligence."The matter before the High Court was hotly contested and ultimately, the petition was dismissed by an elaborate judgment relegating KIAL to the alternate remedy available to it in law. As such, the conditions which enable a party to invoke the provisions of Section 14 of the Limitation Act are very much available to KIAL"Second issueThe second issue was also answered in favour of KIAL by holding that its participation in the CoC process did not estop it from challenging the decision to accept the resolution plan of the appellants.The Court held that KIAL's conduct cannot be regarded as "acquiescence" or "waiver"."Taking into consideration the fact, that KIAL had objected to participation of any other applicant submitting plan after the due date as per the last Form 'G' and also reiterated its objection, we are of the considered view, that it cannot be held, that having participated by submitting the revised plans, KIAL is estopped from challenging the process on the ground of acquiescence and waiver. Merely because,the revised plans are not submitted with the words "without prejudice", in our view, would not make any difference. As already discussed hereinabove, KIAL had no other ...

NCLT/NCLAT Can't Interfere With Commercial Wisdom Of CoC Except Within Limited Scope Under Sections 30 & 31 IBC : Supreme Court

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